Clash Of The Titans

A battle is buzzing and zapping the video-game business. In this cor ner, the martial-arts superstars of Street Fighter II. In that corner, a speedy blue hedgehog named Sonic. Thanks to a summer price war and lots of hype, the two sides are set to wage a brutal Christmas battle, pitting Street Fighter's Nintendo Co. against Sonic's Sega Enterprises Ltd.

Until recently, Nintendo essentially owned the video-game business. The Nintendo Entertainment System and its software accounted for $3.2 billion of the market's $4.2 billion in 1991 U.S. sales, estimates Sean P. McGowan, an analyst at Gerard Klauer Mattison & Co.

Indeed, Nintendo barely faced any competition at all--until last Christmas. Then, Sega's Genesis System, which uses a 16-bit microprocessor instead of the slower 8-bit chip in the original Nintendo system, took off, thanks to its low price of $149. Nintendo's own 16-bit entry, the Super NES, sold for $179. Boosted by its price difference and the popularity of Sonic the Hedgehog, who fights an evil scientist, Genesis emerged from the Yule season outselling the Super NES in most stores by as much as 40%, according to market researchers.

SECRET WEAPON. But this summer, Nintendo has come brawling back. In July, it cut its hardware price to as little as $99, partly by eliminating a free game, worth about $40, that was usually included with the hardware. Sega quickly matched the price. So far, though, Nintendo is winning this round, because of Street Fighter II by Japan's Capcom Co., released in July and already the summer's biggest hit.

Now, Sega is preparing a counterattack by signing up software houses that once worked only for Nintendo. This year, Acclaim Entertainment Inc. and Japan's Konami Co. produced games to run on Sega machines. And the industry is rife with rumors that Nintendo supplier Capcom is readying a Genesis-compatible Street Fighter II. The two will say only that they are talking.

Handicapping the Christmas-season winners is hard, because both rivals are readying a spate of new products. Sega is betting on Sonic 2, a sequel to its fast-paced best-seller, along with its own fighting game, Streets of Rage II. Nintendo is promising Super Mario Paint, a drawing program that includes a computer-style mouse, for $60, and a game that's based on the Road Runner cartoon series.

Sega may hold the ultimate weapon. This fall, it will unveil a $299 compact-disk attachment that will play either standard music CDs or live-action video software--which would dramatically improve the quality of games developed for the machine. Nintendo thinks Sega is jumping in too soon and plans to introduce its answer in 1993: a $200 package that it promises will have better video quality. But Sega's Kalinske notes that by hitting the market first, Sega has already attracted such high-end software shops as Electronic Arts, Sierra On-Line, and Sony to furnish games. Nintendo, he says, "is going to be quite surprised when they see the quality of these games." And that means a new clash in which Sega could once again become lord of the video battlefield.

Before it's here, it's on the Bloomberg Terminal.